GGP CEO talks of higher costs in The SoNo Collection

CHICAGO, Ill. – The story being told by GGP CEO Sandeep Mathrani shifted dramatically last week.

Mathrani, leader of the mall developer currently building The SoNo Collection, in his quarterly earnings conference call startled investors by backing off his previous promise that the company was going to explore liquidating some assets. He also mentioned higher construction costs in Norwalk and said the company is continuing its discussions with possible joint venture partners for The SoNo Collection – but then said GGP would be just as happy to go it alone.

GGP’s stock fell more than 8 percent Wednesday after Mathrani’s remarks, according to the New York Times. That’s in contrast to the 4.6 percent gain the stocks made after Mathrani promised in May to “explore strategic alternatives.”

Mathrani’s May commentary, exploring alternatives with “no sacred cows,” was interpreted by Chicago Business as not ruling out selling the company.

“We believe that at this time that the highest and best use of our time and effort is to stay the course and continue doing what we’re doing,” Mathrani said Wednesday, according to a Yahoo Finance transcript. “We will stay focused on maximizing our existing operating platform on behalf of our shareholders.”

Michael Jason Bilerman of Citigroup Global Markets, Inc. questioned that as a “shift,” and Mathrani explained that his promise had been kept with a “paper analysis” rather than a marketing process, because “we did not feel it was appropriate to sell A assets with the highest growth just to print a value,” according to the transcript.

Lower quality assets are being pruned, with three B malls sold this year, Mathrani said.

“{W}e have concluded that this franchise has best-in-class retail,” Mathrain said, according to the transcript. “There’s also a tremendous amount of embedded value within our portfolio residing in these incredibly well-located urban and suburban infill locations with the ability for a greater amount of apartments, condominiums, office, hotels, data centers, co-working gyms, theaters and the like. In that regard, we looked at all options available to us and actively engaged our board in numerous discussions.”

Mathrani again mentioned that the Norwalk mall has grown in size. In May, he said, “The question is, should we increase the size of the project from about 200,000 square feet to 300,000 square feet.” On Wednesday, he said, “We broke ground in Norwalk and increased the size of the development from 540,000 square feet to 717,000 square feet to accommodate demand,” according to the transcript.

The only talk about square footage in Norwalk has been about a reduction – the elimination of a planned hotel.

“We are not seeking any increase in the size of the project from what is currently approved by the City of Norwalk,” GGP Vice President Doug Adams said in May. “Our CEO was referring to just the smaller inline shop space, and was not including the two anchor stores in the calculation.”

It’s still the same size, 717,000 square feet, of which 415,000 square feet is inline stores, Adams said in a Tuesday email.

On Wednesday, Mathrani said, “Escalations and project scope contributed to the increase in cost.”

GGP’s quarterly filings with the U.S. Securities and Exchange Commission show that GGP estimated the “total projected share of cost” of The SoNo Collection as $285 million in May but as $525 million in August.

That is the total project cost, not just construction costs, Adams said in a Tuesday email. “The project increased to its current size and budget to accommodate demand from tenants, both retail and others that are part of the 21st century shopping experience,” he said.

GGP had spent $54 million on The SoNo Collection as of March 31, and that had risen to $63 million as of June 30, the filings state.

Expected return on investment has dropped from 8 to 10 percent reported in May to 8 to 9 percent reported in August.

The SoNo Collection is about 60 percent leased, Mathrani said, according to the transcript of Wednesday’s call. Sales are expected to be north of $800 a square foot.

Mathrani in May called The SoNo Collection about 50 percent leased and referred to “sales productivity well over $700 per square foot.”

“As mentioned last quarter, we are in final negotiations with two institutional partners to own half the development,” Mathrani said, according to the transcript, also available on Seeking Alpha.

Questioned about that, Mathrani said, “We’re very happy to go it alone. If you can build an A-plus-plus asset at over $800 a square foot that’s 70% preleased at an 8% – north of an 8% yield, you do it alone. It’s prudent to bring in a partner, but you do it alone.”

The SoNo Collection has signed contracts with Nordstrom and Bloomingdale’s as its anchors but recently renegotiated the definition of “Class A anchor” in its contract with the city to include the possibility of specialty grocers or entertainment should an anchor need to be replaced.

Mathrani on Wednesday referred to this.

“{I}f we were to restart Norwalk again, I’m not sure whether we have the need to put two department stores,” Mathrani said, according to the Seeking Alpha transcript. “I think that it’s important to have one, but not necessarily two. I think the second one could easily have been an alternate use, such as a grocer or more entertainment. And as we evolve the plan, and the reason the size and the scope increased is we did bring in alternate uses into the property because we felt that was important to do to create a mall of the future. But at this stage, I would sort of sit back and say having one department store, either a Nordstrom or a Bloomingdale’s, would have been a – would be an important element if you are planning to do a 500,000 square feet shopping center.”

6 comments

The hotel was dropped because GGP couldn’t find a hotelier willing to buy in at a price that made construction of the hotel on top of Bloomingdales profitable. And Hotel on top was driving up construction costs and was a Bloomingdales stipulation. Now that construction has started in earnest, the projected costs have nearly doubled without the hotel? And the hints GGP dropped back in March that they might be looking for a buyer or to sell off assets have evaporated–or not. GGP is looking for investors for the SoNo Collection–or not. If we’re lucky, construction will be stalled until it coincides with the Walk bridge work and South Norwalk can look forward to be enisled for five years.

When a CEO makes a definitive statement like increasing the size of a development from 540,000 sqft to 717,000 sqft to meet demand it is not a mistake. Doug is doing his best at damage control in City Hall. Sounds like phase 3 of the bait and switch. Phase1 – agree to anything to get approved i.e. hotel; Phase 2 – once approved and too late for city to turn back, go back on agreement and threaten to pull plug; Phase 3 – add in additional retail space that was part of original ROI calculation. The City was outmaneuvered by a developer… Again!

Look back and understand since Norwalk started the mall the CEO has sold Millions of his stock when it was a good stock to own.Think he doesn’t know whats coming?

The CEO Sandeep Mathrani shifted dramatically with the hotel days after meeting with Trump ,yes its all fact. Wonder what they talked about it was then a few days after no hotel, Ct decided no casino in our area maybe we were all played.

Now we hear there was about 200,000 yards of contaminated soil missing ,once destined for an old quarry but it appears the dirty dirt was really dirty and has to go somewhere else.It needed a more secure landfill . A person who contacted Norwalkers a few months back who held the lowest bid was wondering where the soil went or is going and why.Costs rise in any project but contaminated soil can be very expensive when the bidders were lied to what was in the soil during the bidding process. How bad is it? Does Norwalk own any of the contamination from Oyster shell? That was never cleaned up the cap went on top,is it possible Norwalk has a running tab on GGPs cleanup? GGP did remove a floor on the parking garage a tell tale sign contamination got worse as they dug deeper.

a quick side note the person who contacted a Norwalker their relative did quarry work and did design and monumental work, the statue of Abraham Lincoln in DC was a master piece, they seem to be very credible.

While we all watch the construction an interesting thought how many Norwalkers are wearing hardhats? If you read the police incidents reports most workers involved in any problems are from out of state matching the license plates lining the site.

The Trojan Horse has been pushed in lets thank city hall and those handful of 80 year olds speaking on GGP behalf. Lets forget Duff he is no longer a viable politician he now states all the time how many years he has been a real Estate agent.Its all about Real Estate now with him.

Has anyone figured out the footprint of this mall is no longer a mall but a series of complexes.Soon we will all see Wall st and Sono turn into ghost towns any viable business will end up at Sono Collection .

Wait another few months condos will appear on the top floor of the mall its the way GGP is going with all of its properties.

The name already suggests downtown Sono will be moving the plans on gyms and movie venues and amusement parks are heading for the new mall.Its in GGPs blood.Our police fire and ems will have to double with that kind of traffic ,we are so lucky Norwalk is planning on such crowds.

Traffic flow patterns were all red herrings like GGP cared what Norwalkers were saying they knew city hall was not listening to the public.Norwalk was and still is low hanging fruit.

Isnt it time throw one of our council members who works with GGP directly in his day job under a bus?

This mall was called a joke by an old council member he warned everyone the last parcel in the city to cash in on was the mall parcel ,it should be the most important deal the city was to make for its future,no one listened.

Im convinced no one reads the GGP game plan ,if they did none of this would be news its just the way they run ,its not about the city its about the investors .

Crime is rising everywhere like the early 90s has Norwalk seriously planned for this mall? Investors will be asking no matter how great this mall gets can the city handle such a work load on our planned budgets?

Crime at most of GGP malls show no doors will be open to the public from the street its where the perps run out of ,never will you see a platform for the rail there its a great escape as well.

Larry the politician said its not going to be a fortress it will be open to the public he may be right there may not be any high end store to steal from the way this mall is going.

No one in city hall reads even the GGP site? Its amazing what malls are turning into ,nothing like what the politicians were sold in Norwalk I would suggest.

@McKeen, enisle–to isolate as if on an island. I’m suggesting that two mammoth construction projects in close proximity to one another in South Norwalk will cut us off, tying up traffic for years. Any travel that requires crossing Washington Street at the Stroffolino or West Ave near 95 will be a nightmare. Washington and Main is already a nightmare.

Donna is correct ,before the bridges and the mall the State clearly said one of the foundations on the washington st bridge has shifted and will need replacing ,what is the state waiting for to explain after the next few moves the Washington street bridge needs replacing it carries am track essential to its upkeep.

The shift in track would fore go any plans to replace the Washington street bridge but Amtrack is running into opposition just read the fine print.

So where is the report that states the bridge needs replacing and the time line on it?

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